[Federal Register Volume 64, Number 81 (Wednesday, April 28, 1999)]
[Notices]
[Pages 22882-22883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10645]
[[Page 22882]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23808; 812-11522]
The Gabelli Equity Trust Inc., et al.; Notice of Application
April 23, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an application under section 17(b) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(a)
of the Act and for an order under section 17(d) of the Act and rule
17d-1 under the Act.
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APPLICANTS: The Gabelli Equity Trust Inc. (the ``Trust''), the Gabelli
Utility Fund (the ``Utility Fund''), and Gabelli Funds, LLC
(``Gabelli'').
SUMMARY OF APPLICATION: Applicants seek an order to permit the Trust to
transfer a portion of its assets to the Utility Fund, a newly formed,
wholly-owned subsidiary that is a registered closed-end investment
company and to distribute to the Trust's shareholders the shares of the
Utility Fund.
FILING DATES: The application was filed on February 26, 1999, and
amended on April 23, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 13, 1999,
and should be accompanied by proof of service on applicants in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, One Corporate Center, Rye, New York 10580.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Staff Attorney, at
(202) 942-0634, or Michael W. Mundt, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549-0102 (tel. no. 202-942-8090.
Applicants' Representations
1. The Trust is a non-diversified, closed-end management investment
company registered under the Act. The Utility Fund was formed on
February 25, 1999, and filed a notification of registration on Form N-
8A on February 26, 1999, to register under the Act as a non-
diversified, closed-end management investment company. The Utility Fund
will file a registration statement under the Act on Form N-2 on or
before May 21, 1999. Application will be made to list the Utility
Fund's shares for trading on the New York Stock Exchange. Gabelli is
registered as an investment adviser under the Investment Advisers Act
of 1940 and serves as the investment adviser to the Trust and the
Utility Fund.
2. The Trust owns 10,000 shares of the Utility Fund's common stock.
These shares were issued in respect of the Trust's contribution to the
Utility Fund of $100,000 of initial capital. The persons who currently
serve as the Trust's directors are also the Utility Fund's directors,
and the Trust's principal executive officers hold the same offices with
the Utility Fund.
3. The Board of Directors of the Trust (``Board'') has approved,
subject to the requested relief and subsequent shareholder approval,
the contribution of a segment of the Trust's net assets having a value
of approximately $75 million to the Utility Fund in exchange for
additional shares of common stock of the Utility Fund, which together
with the 10,000 shares currently held by the Trust will constitute all
of the shares of common stock of the Utility Fund. It is anticipated
that the contributed assets will consist largely or exclusively of cash
and short-term fixed income instruments. All the shares of the common
stock of the Utility Fund then will be distributed by the Trust as a
dividend to its shareholders at a rate of one share of the Utility Fund
common stock for every fourteen shares held of the Trust. The
contribution of the Trust assets to the Utility Fund and the subsequent
distribution of the Utility Fund shares to the Trust shareholders are
referred to as the ``Transaction.''
4. The Board, including all of its directors who are not
``interested persons'' as defined by section 2(a)(19) of the Act (the
``Disinterested Directors''), found, among other things, that the
Transaction will result in the following benefits to Trust
shareholders: (a) shareholders will receive shares of an investment
company with a different risk-return profile than the Trust; (b)
shareholders will acquire the Utility Fund shares at a much lower cost
than is typically the case for a newly-organized closed-end equity fund
since there will be no underwriting discounts or commissions; and (c)
shareholders will be able to seek income and capital appreciation
opportunities presented by the Utility Fund market segment.
5. The Trust does not expect that it will recognize significant
taxable gain on its contribution of cash and securities to the Utility
Fund in exchange for shares of the Utility Fund. The Utility Fund has
been advised by counsel that the distribution of shares of the Utility
Fund to Trust shareholders likely will be a taxable event for Trust
shareholders and, under certain circumstances, will be a taxable event
for the Trust. However, the Transaction is not expected to increase
significantly the total amount of taxable distributions received by the
Trust's shareholders for the year in which the Transaction is
consummated and is not expected to result in the recognition of
significant taxable gain by the Trust. The Board, including all of the
Disinterested Directors, considered the tax consequences of the
Transaction and found that the benefits of the Transaction outweigh any
adverse tax consequences to the Trust and its shareholders.
6. The costs of organizing the Utility Fund and effecting the
distribution of the Utility Fund's shares to the Trust's shareholders,
including the fees and expense of counsel and accountants and printing,
listing, and registration fees, are estimated to be approximately
$330,000 and will be borne by the Trust. The Trust will bear the costs
of soliciting its shareholders' approval of the Transaction and the
costs incurred in connection with this application for exemptive
relief. In addition, the Utility Fund will incur operating expenses on
an ongoing basis, including legal, auditing, transfer agency, and
custodian expenses that, when aggregated with the fees payable by the
Trust for similar services after the distribution, will likely exceed
the fees currently payable by the Trust for those services. The Board,
including the Disinterested Directors, found that it is appropriate for
the Trust to bear the Transaction's cost inasmuch as the benefits of
the Transaction will be for the Trust's shareholder and because
absorption of such expenses will eliminate any decrease in the net
asset value of the Utility Fund's shares in comparison to the amount of
the distribution, which may assist in the pricing of the Utility Fund
shares on the New York Stock
[[Page 22883]]
Exchange. It is not expected that the Transaction will have significant
effect on the annual expenses of the Trust as a percentage of its
assets.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and an affiliated
person. Section 2(a)(3) of the Act defines an ``affiliated person'' of
another person to include (a) any person directly or indirectly owning,
controlling, or holding with power to vote 5% or more of the
outstanding voting securities of the other person, (b) any person 5% or
more of whose voting securities are directly or indirectly owned,
controlled or held with the power to vote by the other person, and (c)
any person directly or indirectly controlling, controlled by, or under
common control with, the other person. The Trust may be viewed as an
affiliated person of the Utility Fund under section 2(a)(3) since the
Trust will own 100 percent of the Utility Fund's voting securities
until the consummation of the Transaction. The Utility Fund may
similarly be considered an affiliated person of the Trust since 100
percent of the Utility Fund's voting securities will be owned by the
Trust. The Trust and the Utility Fund also may be viewed as an
affiliated persons of each other to the extent that they may be deemed
to be under the common control of Gabelli and because the same persons
serve as the directors and officers of both companies. As a result of
the affiliation between the Trust and the Utility Fund, section 17(a)
would prohibit the Transaction.
2. Applicants request an exemption pursuant to section 17(b) of the
Act from the provisions of section 17(a) in order to permit the Trust
to effect the Transaction. Section 17(b) authorizes the SEC to issue
such an exemptive order if the SEC finds that the terms of the proposed
transaction are fair and reasonable and do not involve overreaching on
the part of any persons concerned, and the proposed transaction is
consistent with the policy of each registered investment company and
the general purposes of the Act.
3. Applicants assert that the terms of the Transaction, including
the consideration to be paid or received, are fair and reasonable and
do not involve overreaching by any person concerned. Applicants state
that the proposed sale by the Trust of a portion of its assets to the
Utility Fund in exchange for the securities of the Utility Fund will be
based on the fair value of those assets computed on the day of the
proposed transfer in the same manner as for purposes of the daily net
asset valuation for the Trust. Applicants further state that such
assets are anticipated to consist largely or exclusively of cash and
short-term fixed income instruments and thus will likely pose few, if
any, issues with respect to valuation. The Utility Fund stock
distributed by the Trust in the Transaction will be valued based on the
value of the Utility Fund's assets. ``Value'' for those purposes will
be determined in accordance with the provisions of section 2(a)(41) of
the Act and rule 2a-4 under the Act.
4. With respect to the Transaction, the Board, including a majority
of the Disinterested Directors, found that the participation in the
Transaction is in the best interests of the Trust and that the
interests of the existing shareholders of the Trust will not be diluted
as a result of the Transaction. These findings, and the basis upon
which the findings were made, will be recorded fully in the minutes
book of the Trust.
5. Applicants state that the Transaction will be consistent with
the stated investment policies of the Trust and the Utility Fund as
disclosed to shareholders. The distribution of the Utility Fund shares
will not change the position of the Trust's shareholders with respect
to the underlying investments that they then own. A proxy statement/
prospectus of the Trust and the Utility Fund is being used to solicit
the approval of the Trust's shareholders of the Transaction following
the issuance of the exemptive relief. The Trust's shareholders will
have the opportunity to vote on the Transaction after having received
disclosure concerning the Transaction.
6. Applicants also seek an order under section 17(d) of the Act and
rule 17d-1 under the Act. Section 17(d) and rule 17d-1 prohibit
affiliated persons from participating in joint arrangements with a
registered investment company unless authorized by the SEC. In passing
on applications for these orders, rule 17d-1 provides that the SEC will
consider whether the participation of the investment company is
consistent with the provisions, policies and purposes of the Act, and
the extent to which the participation is on a basis different from or
less advantageous than that of the other participants. Applicants
request an order pursuant to rule 17d-1 to the extent that the
participation of the applicants in the Transaction may be deemed to
constitute a prohibited joint transaction.
7. Applicants state that the Transaction will not place any of the
Trust, the Utility Fund, or existing shareholders of the Trust in a
position less advantageous than that of any other of such persons. As
noted, the value of the Trust's assets transferred to the Utility Fund
(and the shares received in return) will be based on their fair value
as computed on the day of the transfer in accordance with the
requirements of the Act. The shares of the Utility Fund will be
distributed as a dividend to the shareholders leaving the shareholders
in the same investment posture immediately following the Transaction as
before, subject only to changes in market price of the underlying
assets subsequent to the Transaction.
8. Applicants assert that the Transaction has been proposed in
order to benefit the shareholders of the Trust as well as the Utility
Fund, and neither Gabelli nor any other affiliated person of the Trust
or the Utility Fund will receive fees solely as a result of the
Transaction. The fee indirectly payable to Gabelli by the Utility
Fund's shareholders will be the same as the fee currently indirectly
payable to Gabelli by the Trust's shareholders. In addition, by
creating the Utility Fund through the Transaction, the Trust is
effectively enabling its shareholders to receive securities without the
costs associated with a public offering.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-10645 Filed 4-27-99; 8:45 am]
BILLING CODE 8010-01-M